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40
Trade Agreements
Why do states join trade agreements like the GATT? Why would any state
voluntarily relinquish the authority to determine treatment of foreign goods entering
its market or surrender the sovereign right to determine access to domestic markets?
Although the economic argument for free trade is well known and long established
since Adam Smith’s 18th century assault on mercantilism in An Inquiry into the
Nature and Causes of the Wealth of Nations, Harry Johnson (1954) addresses the
economic question of trade agreements by demonstrating that in the absence of a
trade agreement, states are inclined to exploit market power and impose trade
barriers, most notably tariffs, resulting in an inefficient trade war as the equilibrium
outcome. Later theorists applying the prisoner’s dilemma game reveal how in the
absence of a trade agreement the equilibrium will be suboptimal (Mayer 1981).
The Smoot-Hawley Tariff in the US and the corresponding trade war in the
early 1930s offer evidence supporting these conclusions. US trade with Europe fell
by 68% and global trade fell by approximately 66%.13 Similarly, the 1934
Reciprocal Trade Agreements Act in which the US Congress abdicated responsibility
for trade policy to the Executive branch is an admission by Congress that elected
officials are unable, unwilling, or both to abide by the concepts of free-trade
espoused by Smith and later by Ricardo and Bastiat when faced with populist
13 Figures are reported or calculated using data presented in an article titled, “Protectionism in the
Interwar Period” by the US State Department. http://www.state.gov/r/pa/ho/time/id/17606.htm.
Accessed July 25, 2008. No citation for the data is provided on the website.
Object Description
| Title | Riding the wave: an interdisciplinary approach to understanding the popularity of RTA notifications to the GATT/WTO |
| Author | McClough, David Andrew |
| Author email | mcclough@usc.edu; dmcclou@bgsu.edu |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Political Economy & Public Policy |
| School | College of Letters, Arts and Sciences |
| Date defended/completed | 2008-08-07 |
| Date submitted | 2008 |
| Restricted until | Unrestricted |
| Date published | 2008-10-18 |
| Advisor (committee chair) | Katada, Saori N. |
| Advisor (committee member) |
Nugent, Jeffrey B. Cartier, Carolyn |
| Abstract | The proliferation of Regional Trade Agreements (RTAs) notified to the GATT/WTO since the early 1980s deviates from the long-term trend and reflects participation of nearly every member of the United Nations. This dissertation seeks to explain the current wave of RTA notifications by supplementing the economic model of supply and demand with diffusion theory. Application of the supply and demand model is useful in distinguishing between changes in demand and changes insupply of RTAs. This distinction is seldom emphasized in the current literature examining RTAs. Recent applications of diffusion theory in the discipline of international relations offer a unique opportunity to include a dynamic force in the static analysis of the supply and demand model. Empirical analysis assesses the fit of the RTA diffusion pattern by comparing the RTA diffusion pattern to a cumulative standard normal distribution. The analysis indicates that the diffusion pattern of RTAs resembles the diffusion of an innovation through a social system.; The implication of this finding is that the adoption of an RTA as trade policy is not made independently of the decision by other states. Indeed, the analysis suggests interdependency between states. Further empirical analysis explores economic and political variables that may explain the decision to adopt the RTA as trade policy. The empirical analysis is unique in that survival analysis is utilized to assess the variation in duration to adopt an initial RTA since the early 1980s. A central discovery is that regional designation explains the variation in duration to adopt an initial RTA. Multiple regression analysis confirms the results generated using survival analysis and support the assertion that the proliferation of RTAs likely reflects changes in both the demand for RTAs and the supply of RTAs. This dissertation concludes by considering implications for the WTO resulting from the increase in RTA notifications. |
| Keyword | trade agreements |
| Coverage date | after 1980 |
| Language | English |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Provenance | Electronically uploaded by the author |
| Type | texts |
| Legacy record ID | usctheses-m1675 |
| Contributing entity | University of Southern California |
| Rights | McClough, David Andrew |
| Repository name | Libraries, University of Southern California |
| Repository address | Los Angeles, California |
| Repository email | cisadmin@lib.usc.edu |
| Filename | etd-McClough-2338 |
| Archival file | uscthesesreloadpub_Volume32/etd-McClough-2338.pdf |
Description
| Title | Page 49 |
| Contributing entity | University of Southern California |
| Repository email | cisadmin@lib.usc.edu |
| Full text | 40 Trade Agreements Why do states join trade agreements like the GATT? Why would any state voluntarily relinquish the authority to determine treatment of foreign goods entering its market or surrender the sovereign right to determine access to domestic markets? Although the economic argument for free trade is well known and long established since Adam Smith’s 18th century assault on mercantilism in An Inquiry into the Nature and Causes of the Wealth of Nations, Harry Johnson (1954) addresses the economic question of trade agreements by demonstrating that in the absence of a trade agreement, states are inclined to exploit market power and impose trade barriers, most notably tariffs, resulting in an inefficient trade war as the equilibrium outcome. Later theorists applying the prisoner’s dilemma game reveal how in the absence of a trade agreement the equilibrium will be suboptimal (Mayer 1981). The Smoot-Hawley Tariff in the US and the corresponding trade war in the early 1930s offer evidence supporting these conclusions. US trade with Europe fell by 68% and global trade fell by approximately 66%.13 Similarly, the 1934 Reciprocal Trade Agreements Act in which the US Congress abdicated responsibility for trade policy to the Executive branch is an admission by Congress that elected officials are unable, unwilling, or both to abide by the concepts of free-trade espoused by Smith and later by Ricardo and Bastiat when faced with populist 13 Figures are reported or calculated using data presented in an article titled, “Protectionism in the Interwar Period” by the US State Department. http://www.state.gov/r/pa/ho/time/id/17606.htm. Accessed July 25, 2008. No citation for the data is provided on the website. |
